The Wii Fit game is one of Nintendo’s biggest sellers with 697,000 sold in the U.S. in November. Courtesy of Nintendo

By Yi-Wyn Yen

Nintendo seems to have bucked the recession. The Japanese video game manufacturer has doubled November sales of the Wii in the U.S. from a year ago, according to NPD’s latest release on gaming sales.

The demand for the Wii remains strong since the game console’s debut two years ago. The company sold a record 2 million Wiis last month, higher than the previous 23 months. Nintendo (NTDOY) has significantly increased shipments of the red-hot Wii for this holiday season after dealing with a shortage last year. Last November Nintendo sold 981,000 Wiis.

Analysts were taken by surprise by how well the $249 console has performed in a flagging economy. “Two million? You sure? This is mind-boggling,” said Michael Pachter, a top industry analyst for Wedbush Morgan Securities. Pachter had predicted sales of 1.4 million Wiis. “At least Nintendo is meeting demand.”

That’s something the company didn’t manage to do last year, when it underestimated the craze for its consoles. Nintendo had to offer IOUs for the Wii last December and ran out of the DS, its handheld console, before Christmas. This time around, Nintendo increased its holiday inventory for the Wii by 50% and 10% for the DS for the shopping season. November sales for the touchscreen DS, which launched four years ago, tripled to 1.6 million from October ‘08 sales, according to NPD.

The NPD numbers also looked strong for the Xbox 360 (MSFT). A recent price reduction to $199 for its entry-level version, exclusive titles like Gears of War 2 and Fable 2, and a major software upgrade moved 836,000 Xbox consoles in November. Gears of War 2 was the top seller for games with 1.6 million copies sold.

Sony (SNE) is struggling to pick up steam with the PlayStation 3, which remains the priciest of the three console makers. Sony sold 378,000 units of the PS3. The company released Home, its sophisticated virtual reality world, on Thursday to attract more gamers to the PlayStation platform.

Reports that consumers are drastically cutting back on spending hasn’t stopped nearly 15 million people in the U.S. who have bought a DS or Wii this year. “The consumer is voting with their wallets and pocketbooks,” said Nintendo of America president Reggie Fils-Aime. “That the Wii and DS represent the best entertainment value in the marketplace explains why these strong sales are happening.”

Pachter says it’s because people are now choosing a Wii over a latte. “There’s a solid middle class that’s going to make substitutions to buy games. Now it’s buy a Wii and don’t eat out for a month, or don’t take that ski trip,” he said. “Or cut out Starbucks.”

Ubisoft’s Rayman Raving Rabbids TV Party will be one of 130 new games for the Wii this holiday. Courtesy of Nintendo

By Yi-Wyn Yen

How hot is the Nintendo Wii? Even with the U.S. economy in meltdown, Nintendo may still struggle to meet demand for the third straight holiday season.

Nintendo is aggressively ramping up shipments of its popular video game consoles to avoid the shortage it faced last December. The company will increase its Wii shipment by 50%  from the same period a year ago for the retail quarter. Nintendo will also bump up shipments of the DS, its popular handheld, by 10%, says Nintendo of America president Reggie Fils-Aime.

Still, Nintendo is barely keeping up with demand this year. From January through August, the company sold 4.5 million Wiis in the U.S., a 45% increase from last year for the same period.

Those figures already put Nintendo slightly ahead of analyst estimates to sell 9 million units for the year. Nintendo makes roughly half of its sales during the holiday selling season – October through December. Last year during that period Nintendo sold 2.85 million Wiis and 4.5 million units of the DS, according to NPD.

Nintendo had underestimated the Wii-craze last year. The company had to offer rain checks to last-minute Christmas shoppers and consumers often paid a 100% premium on sites like Amazon (AMZN) to get the $250 video game system.

Nintendo even lowballed the demand for the DS. Last December Fils-Aime promised consumers that the DS would be available even if the Wii wasn’t. In an interview with Fortune, Fils-Aime admitted that there was a DS shortage by mid-December. “We ran out for North American supply for the DS Lite,” he says. “Actually we haven’t lasted a holiday season ever for the DS.”

The dual-screen handheld was introduced in November 2004. A new version of the DS, called the DSi, will feature two cameras and debut in Japan in November. Fils-Aime said the DSi will hit stores in the U.S. “well into 2009.”

Fils-Aime was cautious on whether the company would be able to meet demand again this holiday. “I don’t know if we’ll be able to, but were we to get in a car right now and go to 100 retail locations in the San Francisco area, we would not be able to find a Wii in at least 60 of those stores,” he says. “Our hope is that by next week, the Friday after Thanksgiving, and on Dec. 23, you’ll be able to find a Wii.”

Analysts anticipate strong sales for the Wii despite predictions of a broad decline in spending on consumer electronics. “It will sell well,” said Lazard Capital equity research analyst Colin Sebastian in an e-mail. “The console remains in high demand, and I expect retailers will be using Wii’s to attract store traffic throughout the shopping period.”

The Kyoto-based company’s profits increased 48% to $2.6 billion in profits in its 2008 fiscal year, which ended in March. Nintendo reports its next quarterly earnings on Oct. 30.

Fils-Aime says he’s confident that both the DS and Wii will do well even in a depressed U.S. economy. “The video game industry has weathered recessionary times fairly well,” he notes. “I think a $130 DS as the big holiday gift for a child is something a parent can feel good about.” Nintendo will debut more than 200 games for both gaming platforms this fall, such as Personal Trainer Cooking for the DS and Ubisoft’s Rayman Raving Rabbids TV Party for the Wii.

“If we get into unchartered territories with stocks coming severely down and unemployment spikes, then all bets are off,” he added.

By Yi-Wyn Yen

For all the last-minute Christmas shoppers who can’t find a Wii, Nintendo (NTDOY) is offering gift certificates that guarantee you can pick one up in January. Consumers must pay the $249 for the sold-out video game console at a GameStop (GME) on Dec. 20 and 21 and will then receive an I.O.U. to pick up the Wii after the holidays.

“We expect this to be a great way to put something underneath the tree,’” Nintendo of America president Reggie Fils-Aime said during a conference call this morning. “GameStop will have many tens of thousands of rainchecks.”

Nintendo has underestimated the demand of the red-hot Wii since it launched in November 2006. The Kyoto-based company has sold more than 6 million Wiis in the U.S. since its release, and last month sold 981,000 units, more than doubling sales of the Sony (SNE) PlayStation 3 and outpacing the Microsoft (MSFT) Xbox 360 by 211,000, according to NPD Group. While Nintendo has increased production by 80 percent since the launch, Fils-Aime says they did not expect such a craze for the Wii.

“We went into the launch of the Wii with very high expectations. We had expected to be in the upper range of console launches,” Fils-Aime said. “But this is unheard of.”

Last holiday season, Nintendo faced a similar shortage problem with its handheld gaming system, Nintendo DS. Last month Nintendo sold a record 1.53 million units, and Fils-Aime says there will be enough of the portable consoles to go around this Christmas. “Any consumer who wants a DS this holiday will be able to find it,” he said.

While Nintendo’s raincheck system will appease some, thousands are still paying a premium on sites like eBay (EBAY), Amazon (AMZN) and boutique shops to get an actual Wii. Some retailers are packaging extra controllers and games to mark up the cost of the $249 console by more than $200-$300. “We are always disappointed if we see retailers pricing products above the MSRP,” Fils-Aime said. “The only way we can combat that type of activity is by not rewarding those retailers with excess supply of products.”

Nintendo says consoles will be available at six major retailers – Best Buy (BBY), Sears (SHLD), Target (TGT), Toys R US, Kmart, and Circuit City (CC) – this weekend.

By Jeffrey M. O’Brien

On one level, the proposed $18.8 billion merger of Activision (ATVI) and Vivendi’s Blizzard Entertainment (EPA:VIV) seems to make a lot of sense. Good mergers maximize revenue by combining non-overlapping products (like the Guitar Hero Franchise, Tony Hawk, and the World of Warcraft phenomenon), and maximize profits by consolidating administrative costs. But in an industry like gaming, there’s an X factor, creativity. Sure, these companies fit together nicely in terms of lineup and their combined revenues can rival the Madden-sized gaming king, EA (ERTS). But then what? Can a Santa Monica gaming publisher run by a fast-talking CEO and a division of a French media conglomerate ever come together as one cohesive unit?

To get another perspective on the deal — and just to talk about gaming in the midst of the holiday sales season — I swung by the offices of Sega of America to talk to President and COO Simon Jeffery. He says the merger caught everyone off guard. “Activision has long been looking for a way to merge, and Bobby Kotick hasn’t made any secret of his desire to build a company to challenge EA,” Jeffery says. But EA CEO “John Riccitiello was just saying there wouldn’t be any big deals in the pipeline for quite a while. I was calling around this weekend when we heard about it and everyone was taken by surprise. Even the management at EA was stunned by it.”

Whether the companies can find creative synergy is unknown — but geography won’t be a barrier. Activision and Blizzard are across town from each other, but that no longer really matters. Each has development studios all over the world. Same for Sega. And besides, Jeffery says geography just isn’t generally an issue anymore. Two-thirds of Sega’s game development happens in the U.S., but the company has outposts in Australia and Europe — and it relies on the Japanese studios for the “edgier, more creative, wacky stuff.”

As for the potential upside at a combined Activision Blizzard, Jeffery says the merger doesn’t really buy a new set of relationships, but at some point, a huge company can use its girth to bully a retailer into carrying a game. That could prove useful for the combined company when launching new titles. “Powerful retailers like Gamestop (GME) can make buying decisions that can hurt a smaller company,” he says. “But if you’re EA, you can say, ‘Ok, you don’t get Madden then.”

Will the proposed merger have any effect on the sixth-largest publisher, Sega? Jeffery says “not much.” He’s mainly focused on watching the holiday season, which he expects Nintendo to win. “We think the Wii will sell the largest volume,” he says, before correcting himself. “Actually, the DS will be the biggest platform.”

But now that Sony’s PS3 has hit the magic sub-$400 price point, it will give both Nintendo and Microsoft’s (MSFT) Xbox 360 a run. Sega is developing for all four platforms and the company is banking on two new titles, Mario & Sonic at the Olympic Games (executive produced by legendary Nintendo creative head Shigeru Miyamoto) and The Golden Compass to score big at retail. Further out, Jeffery says he has high hopes for the company’s Ironman game, tied to the May introduction of the movie, starring Robert Downey, Jr., and directed by John Favreau, both of whom are involved in development of the game.

By Yi-Wyn Yen

If you can’t track down a Nintendo Wii this holiday season, you’re not alone. Nintendo has not been able to keep up with the demand for its mega-hit console. Now thousands of desperate consumers who can’t find the Wii on store shelves have turned to web outlets like Amazon (AMZN) and eBay (EBAY), where they’re paying a premium to get one.

“We’re seeing an unprecedented demand for a console,” says Billy Pidgeon, a gaming analyst with IDC Research. “This is the killer gift this season. And if you’re lucky enough to get a Wii with Guitar Hero III, that would be the ultimate.”

• Nintendo braces for more Wii shortage

The Wii’s popularity and shortage has not only made it harder to find, but also more expensive to buy than the Xbox 360 or PlayStation 3. Since Black Friday, almost 5,000 Wiis were sold at an average price of $420.50 on eBay and some with extra games and controllers have been purchased for more than $600. On Amazon, new Wiis are starting at $490 plus shipping. The console retails for $250. Both Microsoft (MSFT) and Sony (SNE) dropped prices for their consoles to boost sales this year. Microsoft lowered its entry-level 360 by $50 to $349 while the PS3’s low-end line retails for $399.

“Price alone won’t move hardware,” says John Taylor of Arcadia Research. “This isn’t about price or what’s available, but what people are willing to play.”

The Wii’s fun factor has made it a hit among the mass market compared to its more technologically-advanced rivals. The Wii uses a controller that requires players to simulate swings and punches to play video games. “Clearly, consumers place a higher value on accessible, fun games such as Wii Sports or Carnival than on high-definition graphics and leading-edge processing power,” says Lazard Capital analyst Colin Sebastian.

Though Nintendo increased production by 80 percent since its November 2006 launch, executives warned in October to expect a holiday shortage. Last week the company sold 350,000 Wiis, which gave Nintendo its highest one-week U.S. sales total since the console was released. Nintendo of America president Reggie Fils-Aime said that the company would not be able to keep up with demand until “early next year.”

“The challenge is in demand, not supply,” Fils-Aime told Fortune in October. “We planned optimistically for the launch, but no one could have foreseen how much more popular Wii would be than any other system in memory.”

Taylor says the best way to find a Wii without paying above retail is to contact store managers at gaming shops like GameStop (GME) or box retailers like Wal-Mart (WMT) and Best Buy (BBY) early in the week. “You want to call on a Tuesday or Wednesday and find out when the new Wiis are coming in,” he says. “Usually new games arrive on the trucks Monday night or Tuesday. If you wait to the weekend, you’ll find those shelves empty.”

By Jeffrey M. O’Brien

Gaming powerhouse Nintendo (NTDOY) announced late last week a revamping of its Nintendo of America marketing department. Out go SVP of marketing George Harrison and VP of marketing Perrin Kaplan. In come the former head of marketing at Yahoo (YHOO), Cammie Dunaway, and Shigeyuki Takahashi, the former head of Nintendo Research. Dunaway will serve as EVP of sales & marketing, reporting to NOA president Reggie Fils-Aime, aka “the Regginator. ” Takahashi, the new EVP of special assignments, will consult the marketing department while trying to expand the company’s North American business.

The timing is auspicious, considering that Advertising Age just awarded its Marketer of the Year award to Harrison, Kaplan and senior director of consumer marketing Robert Matthews for their work hawking the DS and Wii. But the company had to see this coming when it decided last year to move the NOA headquarters from Redmond to Silicon Valley. (There’s an invite-only grand opening party this Thursday, btw.) Word is the duo, as well as 90% of the marketing staff, refused to leave the Pacific Northwest.

Given the company’s runaway success, a tripling of first-half profits and revised earnings guidance for the year, some think Dunaway has landed the easiest job in the world. But not all is rosy in Nintendo land. For starters, working at the U.S. arm of a Japanese company can be a nightmare. Kaplan, who had been with Nintendo for 15 years, was by all appearances a master at communicating with the mothership in Kyoto. What’s more, Microsoft’s (MSFT) Xbox 360 outsold the Wii in September thanks to the much-anticipated launch of Halo 3. (Sony’s (SNE) PS3 remains an also-ran). And then there are the continued inventory shortages. What’s a marketer to do when there’s no product to sell? She can push the games, sure, but has to be careful about creating too much disappointment among would-be Wii owners who can’t find a unit to buy.

And then there’s the growing concern that Wii is a fad. Everyone (hard-core gamers, mainly) who has said so from the beginning has been proven wrong. But I’ve watched my own habits and have lately become concerned for the company. I’ve never been an avid gamer, but immediately saw the appeal of the Wii (conveyed so expertly in the bundled title Wii Sports). Lately, however, the console has been getting little use and my household has returned to non-gaming status. Dunaway has to figure out a way to get me back up off the couch — which my wife and friends can tell you is definitely not the easiest job in the world.